Do Not FOMO Into Crypto

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Welcome to another issue of Passionate Income.

Today we’ll be discussing Bitcoin’s monster move, and whether it’s too late to cash in the on the party. We’ll also be discussing why you should avoid FOMO at all costs.

Legal Disclaimer: We are not Financial Advisors and nothing contained in this newsletter should be considered financial advice. This is being provided for educational and entertainment purposes only. Crypto investing is high risk and could result in a 100% loss of capital. Do your own research.

Let’s dive in.

Bitcoin has been explosive lately, climbing from ~$34,700 to ~$43,700 over the last week. A stunning 26% gain.

And as usually happens, smaller projects known as Alt Coins have exploded even higher, with $NEAR, $TAO and $TIA up over 30-40% each.

On the positive side, seeing these kinds of spikes after a nearly two-year bear market is encouraging. It shows investors are coming back to the space.

On the downside, most crypto participants stopped paying attention after the 2021 crash. But with the current rally starting just seven weeks ago, most investors have been left on the outside looking in.

Which raises the question: Is it too late to get in on the action?

While this newsletter doesn’t contain financial advice, we did want to present some different perspectives you can use to decide what’s right for you.

In particular, we’ll cover the most common investing styles and how you can think of each relative to the current rally. Here they are.

#1 - Dollar Cost Averaging (DCA) 💲

As you may or may not know, Dollar Cost Averaging involves making repeated investments at recurring intervals (e.g. once per week). According to a variety of studies, and GOAT investor Warren Buffet himself, DCA’ing has been proven to be one of the most profitable long-term strategies on the planet.

In terms of the current rally, by definition dollar cost averaging means you invest regardless of what the market is doing. Up, down, sideways; no matter what you keep buying.

So no, if you’re a diehard DCA’er, investing 101 says you should not alter your strategy just because Bitcoin pumped recently.

#2 - Lump Sum Investing 💰

While dollar cost averaging involves investing the same amount at spread intervals (e.g. once per week), lump sum investing involves taking a larger amount of capital and investing it all at once (and then waiting before making the next investment).

While there are benefits to both approaches, the risk with lump sum is that you buy at the wrong time and market crashes shortly after. In which case the value of your investment could drop fairly quickly.

Given how fast Bitcoin has climbed, anyone considering making a lump sum investment right now needs to consider risk. In particular, just how much higher Bitcoin could climb in the short-term relative to how much it could fall.

#3 - Swing Trading 📆

Swing trading is a medium-term trading strategy that involves buying an asset and holding it for anywhere from a few days to a couple months.

If you know what you’re doing, and believe Bitcoin could climb even higher in Q1 of 2024, it’s possible swing trading is less risky than lump sum investing. Especially if you understand how to use stop losses to protect yourself from a potential fall.

If you don’t know what you’re doing, however, trying to swing trade is no better than gambling. While it’s true Bitcoin continues to march higher, history shows similar pumps have been followed by serious dumps. To the tune of 30-40% in a short time span.

#4 - Day Trading 📈

We’ll keep this short and sweet: Unless you have deep experience, day trading is extremely risky. Especially right now, with Bitcoin volatility at higher levels than we’ve seen in over a year.

If you have experience, however, you know volatility is key to identifying winning trade setups. And with Bitcoin showing few (if any) signs of weakness, there’s a very real possibility it keeps going up.

So what does this have to do with FOMO?

The Danger of FOMO Investing ☠️

As you probably noticed, none of the above investing styles involve freaking out and plopping down your life savings because you feel like you missed your chance. In fact, doing so is one of the #1 reasons beginner crypto investors lose money.

While it’s easy to look back and tell yourself you “should have” invested, hindsight is always 20/20. Further, if you actually felt confident in your picks, you would have made real investments instead of just making them in your head.

While this might sound a bit harsh (we still love you), if you pay attention to the people who’ve already made 7-9 figures in crypto, you’ll notice they repeat the same mantra over and over:

“Develop a plan and follow it. That’s how you win.”

Admittedly, we at Passionate Income are feeling the FOMO hard. When you see people on social media talking about their gains, it’s easy to feel like you too should be banking crypto profits.

But unless you have a plan, and the emotional fortitude required to follow your plan in the face of adversity, falling victim to your emotions will leave you rekt.

💡 Takeaway: On a long enough time horizon, if Bitcoin keeps going up, it’s virtually guaranteed you’ll end up making a profit. In the short-term, however, nobody knows what’s going to happen next.

What we do know, however, is that making fear-induced investment decisions almost never works. And by never, we mean almost literally never. Instead, you’re better off creating a legitimate investing plan and sticking to it long-term.

I'll leave you with this quote…

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